Legislation was introduced in the Senate late last week that would reform and recapitalize the Federal Housing Administration in an effort to prevent a taxpayer bailout. The bill, introduced by Senator David Vitter (R-La.) would require the FHA to recapitalize its single-family mortgage insurance fund in two years.
“I certainly don’t want the FHA to ask Congress or the Treasury Department for a bailout, which I’m afraid could happen sooner rather than later,” Sen. Vitter said. “The FHA has been violating the congressionally mandated ratio of capital they must keep in their mortgage insurance fund since 2009. It is their responsibility to manage their funds responsibly and keep their books in order. There is no way FHA could operate like that if they were a private bank, and we need to hold them accountable.”
The Vitter FHA Reform Bill directs the FHA to raise its annual premiums and use all available methods to recapitalize the Mutual Mortgage Insurance (MMI) fund to its statutorily required 2% capital reserve ratio within two years. It also includes an assessment of penalties if the fund fails to maintain that ratio and prohibits secret bailouts of the FHA by the Treasury Department.
Along with a handful of other Republican senators, Vitter has opposed the appointment of Carol Galante to be commissioner of the FHA.
“The status quo is not good enough, which is why I encouraged my colleagues to oppose Ms. Galante’s nomination,” he said.
In November, an independent audit of the FHA’s MMI fund indicated its capital reserve ratio stands at 0.24%. While Acting Commissioner Galante stated at the time that the insurance fund has a bright future, she later stated that the FHA could be in danger of a bailout if home prices continue to decline in 2012 and beyond.
Department of Housing and Urban Development Secretary Shawn Donovan stated before Congress that the department would consider raising insurance premiums in an effort toward the fund’s health.
“FHA is constantly evaluating the appropriate level of premiums given the potential risks to the MMI Fund, and any action regarding premiums will be considered in the context of balancing access to credit in today’s economic environment with the need for added revenue generation to protect the Fund,” Donovan in written testimony that was submitted to the Committee members before a House Financial Services Committee meeting titled “Perspectives on the Health of the FHA Single-Family Insurance Fund/”
Written by Elizabeth Ecker